Scaling up Green Bond Market for Sustainable Development

Policy Lever: Directing Finance Through Policy

Policy directed finance approaches introduce requirements or prohibitions that shift capital allocation. Such measures in effect introduce new performance criteria into financial decision-making, which might reduce or increase risk-adjusted returns. The Inquiry found that measures that change the legal requirements facing financial institutions are perhaps the most contentious, but are also widely used.

Examples

Examples in practice include:
  • Lender and other liabilities: legal liability regimes for lenders, fiduciaries and insurers (and responses in terms of due diligence for environmental risk).
  • Capital requirements: adjustments to capital ratios to enable lending towards critical sectors (e.g. for SMEs, green assets).
  • Priority sector lending: integration of environmental and social factors into priority lending programmes.
  • Prohibitions: restrictionson financial transactions due to excessive societal costs e.g. lending to illegal deforestation (Brazil) and pollution intensive industrial plants (China).
  • Directed service provision: requirements that financial institutions provide access to particular financial services such as basic bank accounts and insurance.
  • Mandatory purchase requirements: mandatory requirements for purchase of key financial services (such as insurance) that are essential for system resilience in the face of environmental stress.

Impacts

Measures such as priority lending and strengthened environmental liability have a strong potential for driving change, but need careful design and market preparation to avoid unintended consequences.    

Inquiry Publications

  • Lenders and Investors Environmental Liability

    Date: 19-Apr-2016

    This working paper presents an overview of Lender Environmental Liability (LEL) and Investor Environmental Liability (IEL) regimes and issues. Environmental harm and degradation is often irreparable. Therefore, our assumption is that precaution is the main objective of any international and domestic environmental legal regime. The paper explores the conditions under which LEL/IEL can be effective

  • Green Foreign Direct Investment in Developing Countries

    Date: 23-Oct-2017

    This paper focuses on the actual and potential role of foreign direct investment (FDI) in achieving the transition to a low-carbon, just and sustainable world and, more specifically, FDI flows into developing countries. The particular implications of FDI on the environment – both potentially positive and negative – have given rise to an interest in

  • Sustainable Infrastructure and Finance

    Date: 13-Jun-2016

    Infrastructure is often referred to as the backbone of the global economy and plays a fundamental role in societies by enhancing the quality of life and increasing productivity. In addition to its effects on society and the economy, infrastructure can have significant impacts on the environment, depending on the choice of infrastructure. Approximately 75% of

  • India Country Report

    Date: 29-Apr-2016

    An India Advisory Council of the UNEP India Inquiry was convened by the Federation of Indian Chambers of Commerce and Industry (FICCI). This report highlights key proposals emerging from their discussions for aligning the Indian financial system with sustainability. In the Indian context, they call for development of a more robust and resilient ‘sustainability-oriented market framework’ focused

  • Experience and Lessons from South Africa: An Initial Review

    Date: 17-Jun-2016

    This paper provides an outline of South Africa’s financial sector, the environmental and social issues it faces, the response of government and financial regulators and the extent to which has resulted in measurable sustainable investment flows. In South Africa environmental, social and governance (ESG) considerations appear on the agenda of strategic discussions and are part of the

  • The Role of Policy-Driven Institutions

    Date: 24-Aug-2015

    A variety of interventions can be used to develop national financial systems and provide local access to affordable, long-term finance. This paper considers four key categories of actions: voluntary action; priority sector lending; regulatory or financial incentives as well as direct lending by policy-driven financial institutions. It particularly focuses on the role of policy-driven institutions such

  • Collaborative Initiative for Green Finance in Singapore

    Date: 12-Nov-2017

    This Report aims to mainstream and socialise the idea and opportunities associated with Green Finance, as well as to explore how Singapore as a financial hub can offer Green Finance as additional expertise to better serve the needs of the ASEAN and Asia region. Besides the members of the financial community, the Report hopes to

  • 4th Update Report: The Coming Financial Climate

    Date: 07-May-2015

    This is the 4th Update Report of the UNEP Inquiry, it is focused on the challenge of financing the low-carbon transition. Many approaches and instruments will be needed to deliver the financing needed. Public finance, funded by tax revenues and international transfers, will provide part of the solution.  However such finance will be inadequate. Private

  • Indonesia Country Report

    Date: 30-Apr-2015

    Placing Indonesia’s economy onto a green and sustainable development pathway, as envisaged in the National Long Term Development Plan, will require a large mobilization of investment. Estimates of the annual investment needed are in the order of US$300‐530 billion, with a large portion of this investment needed in critical infrastructure, as well as environmentally sensitive

  • 3rd Update Report: Pathways to Scale

    Date: 07-Jan-2015

    This is the 3rd Update Report of the UNEP Inquiry, it is focused on the challenge of financing the low-carbon transition. It explores how innovative ideas and practices can be made more effective, adopted more widely, and taken to scale—and as a result move the trillions that are required. Scaling-up proven but limited innovations, is a common

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